What's wrong with me being a rich man?

Chapter 475 Iron Chains Across the River (5k)

The European emissions scandal is escalating.

Yu Xing no longer needs to read the news from newspapers or computers. He can see domestic reports and follow-ups on related events on the TV in the morning, evening, and even in the cafeteria. CCTV Finance has also produced a series of special reports to continuously monitor the progress.

Germany's short-selling ban was announced at 8 p.m. China time, and just four hours later, France followed suit with a similar ban, announcing protections for listed companies in the automotive and supply chain sectors.

The bans in the two countries are essentially the same, with a duration of 60 days.

Global investors are prohibited from establishing new short positions or increasing existing positions, but are allowed to hold existing positions until the ban ends.

— Transactions conducted by market makers to maintain liquidity are excluded.

—The ban applies to all EU and third-country investors, and violators may face fines or legal action.

Such a short-selling ban will have a significant impact. For short sellers who are committed to profiting from short selling, there will be three consequences: first, they will have to give up their profits; second, they may face losses; and third, there will be legal risks.

Europe has completely banned naked short selling since 2012, and has introduced the Regulation on Short Selling and Credit Default Swaps (SSR) to this end. It clearly stipulates that for all stocks listed on European exchanges, short sellers must ensure that they have borrowed securities or reached an equivalent legal arrangement before the transaction, otherwise it constitutes illegal naked short selling. Its origin is Germany's unilateral ban on naked short selling of the stocks of 11 financial institutions in 2010.

This isn't the first time Germany has done this, and this time it almost didn't hesitate to take action to protect the market. Moreover, in addition to the explicit ban, it is also trying to strangle the short sellers who rushed in after the peak.

SSRs are regulatory rules, and regulations can sometimes lag behind. Short selling bans target stocks and do not prohibit credit market CDSs. However, Germany is unusual in that it wants to break down the gray areas of CDSs, and after prohibiting CDSs without a sovereign entity, it also prohibits CDSs without a corporate entity.

Non-physical CDS is a credit default swap contract entered into between the buyer and the seller without the buyer holding the corresponding underlying debt. It is usually a speculative bet on the credit deterioration or default of the underlying entity, rather than a hedge against the risk of the underlying debt held by the buyer.

In layman's terms, it means someone buys insurance for their neighbor's house, but doesn't own it and hopes to receive compensation if the house catches fire.

Europe also banned non-sovereign CDS in 2012, but the regulatory boundaries for corporate CDS have always been ambiguous because the profitability of CDS depends on the widening of credit spreads, which have a smaller volatility than stock prices.

以戴姆勒为例，它的股价下跌10%可能导致CDS利差从100基点扩大到200基点，1000万美元本金的CDS头寸的收益就差不多是100万美元，会显著低于期货10倍杠杆的1000万美元收益。

However, this situation is very special.

The European automotive industry is experiencing a chain reaction, with investment-grade bond basis points increasing and credit risk rising significantly. Market sentiment may drive more funds to buy CDS for hedging, which in turn will further push up spreads, making CDS an even better tool for short selling.

Europe has been tightening regulations on corporate CDS in the past two years, and with this latest incident, Germany has once again set a precedent by banning the operation of CDS without a physical entity, requiring investors to hold an actual risk exposure corresponding to the notional amount of the CDS.

In other words, a person must actually own the house to buy insurance. If the house catches fire and the person receives compensation, the person has not profited from the fire, but has only reduced their losses.

This is precisely the area that American short sellers are eagerly flocking to.

Because of the lack of clear regulations, companies flocked in; and because of this influx, regulations were tightened.

The problem is that those who have already acquired non-physical CDS are required to either close their positions in the short term or buy the corresponding assets, according to the notice. This is undoubtedly a losing proposition for short sellers who use this short-selling tool.

The loudest voice came from Chanos, a well-known short seller who had remained silent until now, as Germany dropped the bomb.

Chanos did not comment on Renault's emissions scandal, did not participate in discussions with his peers about the peak, and did not talk about the chain reaction caused by the Volkswagen Group and Bosch Group. However, as soon as regulations tightened, he immediately stood up and loudly criticized the EU for its damage to the market economy.

If we were to rank the world's most famous short sellers, George Soros, who attacked the pound and forced Britain to withdraw from the European Exchange Rate Mechanism, would be number one, and Henry Paulson, who shorted subprime mortgages during the 08 financial crisis, would be number two. Then, Chanos, who shorted Enron, might be number three.

Such a strong reaction from a world-class short seller made everyone aware of his previous quiet short selling, but this was both unexpected and reasonable; that's the profit-driven nature of short sellers.

Chanos gave a direct interview to The New York Times, harshly criticizing Germany's short-selling ban and tightening of CDS.

"This emissions scandal involving the Volkswagen Group is completely different from the financial incidents we have encountered in the past. Volkswagen has committed 100% emissions fraud, violated the law, and harmed consumers. The short-selling ban will only prevent the market from pricing in the risks in advance, causing the stock price to become decoupled from the fundamentals!"

"The European ban has masked the true financial vulnerabilities of those counterfeit car companies!"

"If the market cannot punish car companies that commit fraud, how can we protect car companies that strictly abide by the law?"

"Such a ban is short-sighted. It will only exacerbate information asymmetry, prevent the market from revealing corporate problems through trading activities, and ultimately harm the interests of all investors."

Chanos was indignant, and the world-class short seller had transformed into a guardian of the financial markets.

Ackermann, a short seller who previously clashed with Shanfeng in Vania, actively responded to the criticism, also issuing a warning: "Does the ban in Germany and France mean that they already know which automakers are also involved in fraud? Isn't this concealing a major risk from the market?"

"These temporary restrictions can only stabilize stock prices temporarily. Once they are lifted, there will be a greater rebound. Those people in Europe don't understand financial markets at all! They should come to the United States to learn the most basic financial knowledge!"

Compared to short sellers like Chanos and Ackerman who launched attacks, there was also hedge fund manager Thomas who directly sued Germany's BaFin. While joining forces with other short sellers who had similar experiences and determination to sue the German government, he declared that "taking BaFin to court is far more exciting than shorting."

Thomas questioned on his Twitter account: "Volkswagen and Bosch have not been punished. BaFin's selective enforcement undermines market fairness. This kind of regulatory body's bias towards specific companies is like being both the referee and the player!"

The Franco-German ban, and the potential subsequent EU ban, has stirred up sentiment among short sellers.

However, Wolfgang, the head of the German finance ministry, gave a sharp response in a media interview.

"Bring on the criticism, we know who you are!"

Wolfgang's words, spoken after he was paralyzed from the waist down following an assassination attempt, reveal his unwavering resolve.

Stop pretending, we know who you are!
However, Chanos also responded to this statement with several tweets.

Are you speaking to investors or to the car owners who have been cheated?

"Oh, you know them, right? You've captured the mountain peaks? You know who they are?"

"Wolfgang, you don't know, do you? I do know, but I'm not telling you."

The statement by a world-class short seller about Guo Shanfeng's identity caused a stir and immediately attracted numerous media interview requests, all wanting to know who was behind Guo Shanfeng.

Once the identity of the mountain peak is exposed, if a ranking of the world's short sellers were to be compiled, its mastermind would probably be able to displace Chanos himself and enter the top three globally.

However, Chanos remained tight-lipped about it.

As a well-known figure, Chanos's words should theoretically carry a lot of credibility. However, he is also a well-known short seller, so it's hard to know how much of what he says is true and how much is false.

Criticism from American short sellers has failed to stop the implementation of policies in Germany and France.

The policy proved effective, with reduced trading volume in stocks of companies like BMW and Daimler, and narrowing spreads on industry-related CDS, indicating a concentrated liquidation of speculative positions.

However, although the CDS spread in the European automotive industry has narrowed, it has inverted with bond yields, which means that real risks still exist in the industry.

At this critical juncture, sources close to the government have revealed that the EU will introduce a comprehensive plan for automakers to maintain industry and market stability.

Clearly, the short-selling bans and CDS tightening in Germany and France are just the first steps they have taken in the financial markets, but this step is already enough to damage short sellers who are driven by profit.

The policy impact on the financial markets continues, but concerns about fraud in the automotive industry are also spreading.

Just as the world was speculating about which other automakers were involved in the fraud, another piece of news shook the entire industry.

Martin, the CEO of Volkswagen who recently resigned to take responsibility, was taken away for investigation by the German Federal Financial Supervisory Authority. Soon after, it was revealed that the reason for the investigation was not Volkswagen's emissions fraud, but suspected insider trading.

The main players in insider trading are... shorting the public.

The news came as no one expected.

Chanos: ?

Ackerman: ?

Renault: ?
Stockholder: ?
public:????

April Fool's Day message?

Are you saying that the former CEO of Volkswagen was suspected of shorting his own company during his tenure?
What kind of outrageous joke is this?!

But then again, the head of Renault is already in Tokyo, so what difference does it make if there's another head of Volkswagen?
Renault squats, Renault squats, after Renault squats, Volkswagen squats.

Emissions fraud is a scandal, supply chain involvement in fraud is a scandal, and now it's reasonable to add another scandal—shorting one's own company.

Fortunately, Volkswagen's stock had already been temporarily suspended from trading; otherwise, the new scandal would have caused the stock price to plummet.

On May 24, BaFin, the German financial regulator for Volkswagen, issued an investigation notice to the Volkswagen Group, demanding the submission of Martin's board meeting minutes and internal audit report within 10 working days, formally launching an administrative investigation into the former CEO of Volkswagen and thoroughly verifying the authenticity of the rumors. That evening, media outlets cornered Martin as he left BaFin's office, relentlessly questioning him about his actions.

Martin was relatively decisive and efficient at his previous resignation press conference, and he was also quite bold and decisive in his communications to force Bosch Group to take over.

From the perspective of the media, the market, and even short sellers, the fact that Volkswagen fabricated data, and that he decided to admit guilt and take full responsibility, still demonstrates the demeanor of a top-tier company leader.

but……

He shorted his own company...

Surrounded and questioned by reporters, Martin remained silent, looking disheveled and utterly humiliated.

His eyes were dim, and he did not answer any of the "whys".

Martin fled from the camera, feeling somewhat lost for a moment.

When that specter set its sights on emissions, Volkswagen's fate seemed sealed.

On those anxious nights when no effective solution could be found, his reputation as the head of a top automaker was absolutely at risk, while consulting with friends in the financial sector seemed like a safe way to bring back substantial benefits.

He felt he wouldn't regret shorting Volkswagen, and when he received the investigation call from BaFin, he simply accepted his bet on their accurate analysis.

However, when he was actually investigated and exposed, Martin felt he regretted it.

Why bother?

Martin could almost hear the investigators' voices again; Carlos from the French AMF had a look in his eyes that was both mocking and pitying.

"We were just tracking down the mountain peaks and happened to find you along the way."

Carlos answered Martin's question about how quickly he was found.

The multinational team is still tracking down unusual funds, but the hope of catching the mountain peak is getting slimmer and slimmer. The upgraded cross-border investigation is a game-changer for a "newbie" like Martin.

Martin sat in the car and sighed silently.

Ghost, ghost.

……

"How much did Chanos buy? He even said he knew about the peak, he's just acting impulsively."

"Martin is awesome! No wonder he's a top leader, he really dares to do that!"

"The car companies involved in counterfeiting will definitely be exposed soon. Even if regulatory agencies and car companies don't take the initiative, third-party tests will definitely be released soon."

In the canteen of the Silicon Carbon Group, Yu Xing found it hard not to enjoy discussing important industry matters with Hu Zhengnan and others.

He had always maintained a calm demeanor in front of others, but the successive news forced him to take action, especially Martin's shorting of Volkswagen, which was simply... appalling.

Yu Xing had jokingly discussed this possibility with Liu Wanying beforehand, but now that he has actually witnessed her actions, he has to give her a thumbs up.

That's why they're considered top-tier leaders—they have broad vision and decisive actions.

While having dinner, Hu Zhengnan, Cui Zhiyu, and others expressed their dismay at the chaotic state of the industry.

What exactly is wrong with the automotive industry?
People like Ghosn and Martin are household names in the industry, how did they end up like this?
Companies like Renault, Volkswagen, and Bosch are world-class enterprises, so why are they all rushing to knowingly produce counterfeit goods?

As Cui Zhiyu was sighing, he suddenly received a WeChat message.

He glanced at it and immediately reported to his boss, "President Yu, President Yu! The executives from Volkswagen China who previously rejected me are now willing to come to Hong Kong for a visit! Damn, Martin has given us a helping hand!"

Yu Xing nodded with a smile. "What do you mean by 'giving an assist'? This is not about giving an assist, but about creating one."

He remained calm: "Then you can meet with them and have a chat. If they are really interested, I will step in and talk to them. This will give us more room to maneuver."

Cui Zhiyu agreed, and his mind became more active as he began to consider what benefits the Silicon Carbon Group could gain from this wave of industry chaos.

After dinner at the cafeteria, some people went home, while others worked overtime.

Yu Xing didn't have any extra work to do today. He only planned to chat with Liu Wanying about the latest situation on her end. But as soon as he entered the office, his secretary, Zhang Yangxu, hurriedly reported that the security guards had captured Li Song, who had tried to force his way in, at the company gate.

He found the report somewhat confusing: "?"

Even if Li Song didn't say he could see him anytime, he wouldn't necessarily force his way in.

Zhang Yangxu added, "It seems that President Li has been drinking; he has already been taken to the reception room."

Yu Xing frowned, unsure of what was going on.

He hesitated for a long time before calling Xu Xin immediately, and decided to go to the reception room to see Li Song first.

Li Song sat dejectedly in the reception room, a cup of hangover tea in front of him.

"President Li, what's going on..." Yu Xing rolled his eyes, both amused and annoyed, "Did you have a fight with President Xu?"

After fussing around at the gate for a while, Li Song had sobered up considerably and sighed, "It's not noisy, but it'll be soon."

Yu Xing laughed and said, "What brings you here? Are you drunk and acting crazy?"

Li Song lowered his head and remained silent for a long time.

After a while, he lamented, "The car I bought hasn't arrived yet, and I've only paid half the money, and they've already exposed the emissions fraud."

Yu Xing was a little surprised: "You still haven't accepted this? We didn't talk about it last time, so let's just consider it a contribution to environmental protection."

"I...I'm not reconciled!" Li Song suddenly raised his head and repeated, "I'm not reconciled!"

He hardened his heart and confessed everything: "I wasn't willing to give up, so I took more money to short sell in Europe! As a result, Europe issued a ban on short selling!! I..."

Yu Xing was dumbfounded. Once was bad enough, twice was bad enough, but this time...

Li Song muttered, "Logically speaking, those European car companies must still have problems. BMW, Daimler, suppliers—this time it must be a whole bunch of scandals. Logically, I could make money by shorting the market, it's just a matter of how much. But why did I crash and burn like this?"

Yu Xing asked, "Everyone thinks it's possible to make money, but is it really possible to make money?"

Li Song remained silent.

Yu Xing comforted him, saying, "It's not just you who crashed. I think Chanos and Ackerman, those big short sellers, did the same thing. Everyone is greedy, and everyone crashes."

The referee simply flipped the table, affecting everyone.

Li Song was not comforted at all. He covered his face with his hands, thinking about his experience, and burst into tears.

Seeing such a grown man reduced to this state, Yu Xing was at a loss for what to do.

He considered calling President Xu, but then he sat down on the sofa, looked at Li Song in front of him, and fell into deep thought.

After a long while, when Li Song's emotions had calmed down somewhat, Yu Xing expressed his confusion: "Mr. Li, it's not surprising that you would use money to short sell. Who doesn't want to make money? But I just don't understand. You don't have an advantage in information from abroad, and you are in China. Mr. Xu has connections in various industries. Instead of throwing money abroad, why don't you cultivate the domestic market?"

Li Song was feeling down when he heard this, and he was immediately shocked. The domestic market, the domestic market...

He muttered a few words, then suddenly took a breath: "I can do it in China! I have an advantage in China! I can complete my legendary battle in China! I want to prove that I am not..."

Li Song glanced at President Yu. "I'm going to prove I'm not a donkey!"
Yu Xing had to speak up to correct him: "President Li, it's a battle to seal off people."

Li Song remained silent for a moment, then said, "A battle to seal people's fate is also acceptable."

(End of this chapter)